Marijuana

Reluctance of banks leaves pot shops looking for secure practices

Sally Vander Veer of Medicine Man hands bags containing $122,000 in cash to Blue Line Protection Group staffers Matt Karr, right, and Phil Baca. The security company was transporting the tax money to the state Department of Revenue. (Hyoung Chang, The Denver Post)

The former Marine and the former sheriff's officer are on a low-key mission. They left the body armor and assault-style rifles back at the office. Their black SUV — it has to be black, right? — blends into the midday traffic barreling west through the city on Interstate 70. When you're carrying $122,000 in cash stuffed in a blue tote bag that smells like marijuana, the less conspicuous the better.

"Right now, we're like any other vehicle on the road," says Phil Baca, the ex-sheriff's officer, checking his rearview mirror to make sure they aren't being tailed. "You'd never think there was a bunch of money in it."

Blue Line Protection Group employee Matt Karr, above, delivers cash from Medicine Man to the state Department of Revenue, left, on May 19. Hyoung Chang, The Denver Post

This is nothing more illicit than the delivery of one month's worth of tax revenue owed to the state by Medicine Man, a family-owned Denver marijuana business with designs on becoming a national brand.

The cash — everything from singles to $100 bills — is being delivered to a state office by employees of Blue Line Protection Group. Former military and law enforcement veterans began the Denver company to provide security and other services to licensed marijuana businesses.

The surreal scene of law-and-order guys transporting cash from recreational and medical marijuana sales to a state government office could only happen in Colorado, where the ambitions of a lucrative but risky business run headlong into the realities of trafficking in a product still illegal under federal law.

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The only reason the $122,000 in cash from Medicine Man's safe is zooming down the highway is that a month earlier, the bank that had taken the marijuana merchant as a customer closed its accounts.

There were no more checks to write.

Bad news in a letter from bank

Business had been smooth and thriving at 4750 Nome St.

Lines curled around the building on "Green Wednesday," the first day of recreational marijuana sales anywhere in the world.

Andy Williams, the driving force behind Medicine Man, wore a blue suit and gave interview after interview. He expects his store — billed as the largest single-location dispensary in the state — to bring between $10 million and $12 million in revenue this year.

Marijuana businesses have long struggled to gain banking services because marijuana is as illegal as cocaine and heroin in the eyes of federal law — and federal agencies regulate banks.

Five months into Colorado's history-making turn selling marijuana for recreational use, banking remains the largest obstacle for business owners and government officials trying to regulate them.

Like most Colorado marijuana businesses, Medicine Man has followed a many-forked road working with financial institutions so it can deposit money and pay its employees, taxes and other bills.

Back when Medicine Man started in 2010, Andy Williams says he opened an account in the business' name at Wells Fargo, where he had a personal account and those of past failed businesses.

Medicine Man's security company transporting $100,000 in cash from the business to state offices. revinew. Denver on May 19, 2014. (Hyoung Chang, The Denver Post)

Williams, a serial entrepreneur and former industrial engineer, began Medicine Man with his brother Pete, a high school dropout who started growing weed in his basement and selling it to medical marijuana dispensaries.

The woman at Wells Fargo submitted the paperwork "in such a way that it didn't call attention to itself," and somehow Medicine Man remained in good standing even after the San Francisco-based bank began a purge of marijuana-business accounts in 2012, Andy says.

To keep up good relations, he went out of his way to learn little details about bank employees — like the teller who was teased because her wedding ring was small. He sprayed weed-scented dispensary cash with Febreze air freshener before depositing it.

Then, in 2013, Wells Fargo moved to close Medicine Man's accounts.

Wells Fargo spokeswoman Cristie Drumm declined to discuss Medicine Man's circumstances. But she said it is against company policy to work with marijuana businesses, and the bank conducts internal reviews to enforce that.

Through industry word-of-mouth, Medicine Man was steered to Bank of America. Bank officials didn't ask for much detail, Vander Veer says. She says she provided a copy of the articles of incorporation and described the nature of the business as "retail grow."

Asked by a bank official whether Medicine Man sold anything else, she says she mentioned T-shirts and other sundry items.

"There was no instance when I didn't answer their questions without a direct answer," Vander Veer says. "I guess it was an omission. I didn't mention marijuana. It may not be best practices. It's desperate practices."

All was well until April 7, the date of the letter from Bank of America. It was signed: "Sincerely, Closure Unit."

A Bank of America spokesman said the bank does not comment on specific cases involving customers but that, as a matter of policy, does not work with marijuana-related businesses.

This was supposed to be a hopeful time for marijuana entrepreneurs looking for financial services that other businesses take for granted.

In February, the U.S. Department of Justice and an arm of the U.S. Department of Treasury provided guidance meant to make it easier for banks to openly work with marijuana businesses.

The guidance, however, put greater burdens on banks to document that marijuana companies were preventing distribution to minors and not funding criminal enterprises, as well as six other federal priorities.

"We are probably a bit worse off," said Mike Elliott, director of the Denver-based Marijuana Industry Group. "I've had more people tell me they've lost bank accounts, and I don't hear many positive stories about things opening up."

The Williams siblings did have stopgap measures in place, including an account for a separate entity that owns Medicine Man's real estate and a restricted bank account set up by a brokerage firm.

The brokerage account does not accept cash deposits, which forces Medicine Man to pay many bills in cash.

"It just makes cash management a full-time job," Vander Veer says. "There are just other things I'd rather be doing to move this business forward."

Vander Veer says she is sending employees to 7-Eleven to purchase money orders in $500 increments to pay bills. For safety reasons, the owners and senior staffers do not take product or money home.

"I'm afraid that nothing is going to happen until someone dies, that no widespread changes will be made until it's reactionary," she says.

Firm handshakes and pistols

The guys from the security company arrive just after lunch. Vander Veer guides them to the safe room, where televisions display footage from some of the 65 cameras trained on the property. She punches in the code, spins a gold wheel and hands over the cash.

Paying taxes this way is a first for Medicine Man, but the business knows Blue Line Protection Group well. The firm's armed guards have worked the door checking IDs at the store since Jan. 1.

The tax-delivery men have firm handshakes, broad shoulders, khaki pants and Glock pistols on their waists.

Baca, the driver, is a 28-year-old Denver native. As a member of the Jefferson County Sheriff's Office special-operations response team, he says he worked the Democratic National Convention, transported high-risk prisoners and kicked down his fair share of doors.

His partner, 27-year-old Matt Karr, grew up on a Nebraska pig farm. The former Marine says he spent much of his 8½- year tour overseas in Iraq and on "some small missions that don't need to go in the paper."

Baca acknowledged "surreal moments" walking into a warehouse with workers calmly snipping bud from flowers, which in his past life would be a crime scene with people cuffed facedown on the ground.

Both men say they find the work satisfying.

"It is rewarding like doing CPR to save someone's life?" Baca says. "It's not like that. But you are making people feel safe."

On these deliveries, Baca and Karr don't take the same route twice. They switch up vehicles.

At the Department of Revenue office, they are whisked past people waiting to renew their vehicle registrations or pay fines. They don't need to take a number.

They are led to Window 1, where state employees count bills that in the previous month were used to purchase bubble hash and Cherry O.G.

"Tell them thank you for having it well organized," the clerk says.

The couriers head out, joking that they are no longer of value.

Laughed out of the room

Not surprisingly, the marijuana industry's banking crisis has attracted opportunists, some more credible than others.

Two men in their early 20s came to Medicine Man claiming to be former special-forces members. They said they were fully insured and bonded and prepared to use their private plane to fly Medicine Man cash to a bank in the Cayman Islands on a monthly basis.

Their proposed cut? Seven percent of the deposits.

Vander Veer laughed them out of the room.

The most promising proposal to date came from the very same company that guards Medicine Man's doors and pays its taxes.

On a May morning in Andy Williams' office, two representatives of Blue Line Protection Group laid out their plan.

The company would serve as a compliance intermediary, an independent third party that would provide banks with data confirming that customers are 21 or older, licensing confirmation, monthly tax income, sales figures and other sensitive information.

"The banks are saying they won't do it because it's an enormous amount of information they don't possess," says Dan Sullivan, Blue Line's vice president of sales and training. "A third party, though, could do it for them. That could work."

Sullivan says the company is working with five Colorado marijuana companies as part of a beta program and has drawn interest from two Colorado-based banks, which he would not identify.

Blue Line would transport cash from businesses, store it in its own vault and then take it to a bank processing center, he says.

The service would cost $2,500 a month, Sullivan says.

Andy Williams says the arrangement would give Medicine Man access to debit cards and checking. He says the terms are agreeable.

"It's the only solution we have right now," he says.

Jenifer Waller, senior vice president of the Colorado Bankers Association, says third-party compliance plans are a new development. A handful of companies have emerged with proposals in recent weeks, she says.

"I still don't see it as being a solution," Waller says. "The challenge to banking isn't necessarily the compliance, it's that (marijuana) is illegal federally. Until a change is made at the federal level, I don't see any resolution taking place on this topic."

There is little hope among bankers or industry officials that a bill signed into law this month by Gov. John Hickenlooper will provide a fix, either. The legislation would create the world's first marijuana business banking cooperative. The Federal Reserve Bank would need to approve, an uncertain prospect.

For now, Medicine Man's ambitions are not being slowed by the lack of a bank.

Negotiations are underway to purchase property outside Denver for an additional retail operation and a greenhouse grow.

Still, Williams must figure out how to handle a $1 million loan he's receiving from an investor for an expansion of the current location.

"What do you say?" Williams says. " 'I want it in cash, guys?' "

EDITOR'S NOTE: This is the third in an occasional series of articles on Year One of recreational pot sales in Colorado told through the lens of one business, Medicine Man in northeast Denver.

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